Resale Price Maintenance and Retail Outlets
Bibliographic Data
| ID | 9726150 |
|---|---|
| Authors | J R Gould (0000-0003-4352-1028), Lee E Preston |
| Year | 1965 |
| Volume | 32 |
| Issue | 127 |
| Pages | 302 |
| Publication date | 1965-08-01 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | JSTOR (PUBLISHER) |
| DOI | 10.2307/2552227 |
| OpenAlex | W2313836595 |
| Language | EN |
| Citations received | 3 |
Resale price maintenance (r.p.m.), the marketing practice by which the producer or brander of products requires subsequent resellers to offer them at minimum or stipulated prices, has been a subject of discussion and analysis for over a quarter century. There does not, however, seem to exist in the literature any formal analysis of the optimal choice of price and margin by a manufacturer (brander) practising r.p.m. The purpose of this article is to investigate some aspects of this problem in the context of a simple model. Our analysis leaves out of account the two most frequently advanced explanations of r.p.m., each of which involves an assumption of a cartel or of cartel-like behaviour at either the manufacturing or the retailing level.' We investigate here the possibility that r.p.m. might be introduced on the initiative of a single manufacturer dealing with a large group of competitive retailers. Any discussion of price policy must assume some degree of monopoly power on the part of the policymaking firm. We consider here a model in which a single-product monopolist manufacturer sells directly to a large number of competitive single-product retailers, each operating under identical conditions of demand and cost. Throughout, the discussion is in terms of static, long-run equilibrium analysis. Under the conventional assumptions about the determinants of market demand and production costs, the monopolist manufacturer has no incentive to practise r.p.m. Given the market demand schedule, the manufacturer's average revenue schedule is determined by deducting the retail margin directly from the demand price.2 Since the highest average revenue curve will be that associated with the smallest retail margin, the manufacturer has no incentive to increase the margin through r.p.m. Perfect competition and free entry among the retailers will ensure that the retail margin per unit is just equal to the minimum average retail operating cost per unit, the competitive long-run equilibrium solution. No smaller margin can be offered without forcing the retailers into bankruptcy; any larger margin simply reduces the profits of the manufacturer
Business · Cartel · Collusion · Context (archaeology) · Economics · Incentive · Industrial organization · Market power · Microeconomics · Monopoly · Product (mathematics) · Resale price maintenance · Revenue · Schedule · Consumer Market Behavior and Pricing · Digital Platforms and Economics · Merger and Competition Analysis
| Unique citing works | 3 |
|---|---|
| Citations per year | 0,07 |
| Citation span | 1986 - 2017 (32) |
| Citation velocity | historical |
| Highly cited | No |
| Citation types | Neutral: 1 |